On Wednesday, April 26th, equity market structure professionals gathered in NYC for the Annual Equity Market Structure Conference, the one-stop resource for updates from the industry’s leading experts on today’s markets and the ever-evolving regulatory framework that guides them.

The common subject across the six substantive sessions of the day was the future of Regulation National Market Structure (Reg NMS). Randy Snook, executive vice president at SIFMA, opened the conference telling participants that the future of Reg NMS is a top priority. “Equity markets have evolved considerably since Reg NMS was adopted. Now is a very appropriate time for the SEC to conduct a review,” he said. “Ultimately, SIFMA’s goal is to improve market resilience and ensure the equity market continues to benefit investors and play an essential role in capital formation.

In a one-on-one interview with CNBC’s Bob Pisani, former SEC Commissioner Dan Gallagher, echoed Mr. Snook’s sentiment that now is the time to analyze the impact of Reg NMS. Throughout the day, there was agreement that the rule has greatly helped the trading experience for individual investors, resulting in reduced trading costs and increased quality of execution. At the same time, however, Reg NMS has also contributed to a highly complex stock market with a significant focus on the speed of execution. Mr. Gallagher emphasized the need to make a comprehensive assessment of data collected since the rule took effect in 2005, objectively measure the impact and make a decision on next steps.

To this end, SIFMA was encouraged by SEC Commissioner Michael Piwowar’s request for comment on Reg NMS. In our comment letter, SIFMA identified four key areas where we recommend further consideration:

• First, have the equity markets sacrificed resiliency by becoming too complex? We think the SEC should evaluate the Order Protection Rule to determine whether it is continuing to provide value or if increased market complexity is creating unnecessary market risk.
• Second, has Reg NMS resulted in rebates that create improper incentives or hidden conflicts of interest? We think the SEC should address the cap on access fees, either through a reduction in the cap or through a pilot to study the impact of varying levels of access fee reductions.
• Third, do speed and quality issues with the public market data feed create an inequitable trading environment for individual and smaller investors? We think the SEC should evaluate the current framework for providing the public market data feed and consider improvements such as adding depth of book information and permitting competition among public market data consolidators.
• Fourth, have we struck the right balance between exchanges’ profit incentive and their role in setting regulatory policy, particularly through the use of NMS Plans? We think the SEC should address the current lack of balance in NMS plan structure by providing broker-dealers and asset managers with representation in Plan governance.

In closing, deep and liquid trading markets are key to the services that equity markets professionals provide to customers. In addition, the strength of the U.S. equity markets spurs investor confidence, opportunity and participation, creating a viable IPO market that provides businesses with capital to grow and invest. This pipeline to capital stimulates innovation and economic growth that creates jobs. SIFMA remains focused on equity market structure, and will continue to present suggestions to legislators and regulators to improve the ability for U.S. companies to raise capital and increase their important role in U.S. economic growth. We thank you for joining this in-depth forum on the state of U.S. equity market structure and hope to see you next year!

T.R. Lazo
Managing Director & Associate General Counsel
SIFMA